The changes are intended to make the Competition Commission of India (CCI) robust and nimble. What does this mean, in practice, for corporate India?
In a much-awaited development, the President has given her assent to the Competition (Amendment) Act, 2023, (henceforth, Amendments) that significantly recasts the Competition Act, 2002 (henceforth, Act). The Amendments will come into force when notified by the Ministry of Corporate Affairs.
Here are some of the key revisions and what corporate India can expect.
Deal Value Threshold: A Lot To Deal With?
Moving forward, any deal valued above INR 2,000 crore is to be notified to the CCI if the target has “substantial business operations” in India.
While the Amendments expand the merger control regime, it raises the following questions (likely to be addressed by the CCI in its regulations):
* What would be the scope of substantial business operations?
* Whether Deal Value Threshold (DVT) would apply to deals signed but not closed on the date of notification?
* How should deal value be computed?
* Whether supply agreements, ancillary arrangements would be considered in the scope of deal value?
If these questions are not carefully addressed, given the relatively low DVT, it would open the floodgates to transactions with little or no impact on Indian markets. This could block CCI’s valuable time and resources and increase the cost of compliance for companies.
Shorter Timelines, But…
The Amendments have reduced the overall merger review timeline from 210 to 150 calendar days. More importantly, it cuts down the time granted to the CCI to form a preliminary view on a transaction from 30 working days to 30 calendar days.
While the change is well-intended to speed up approvals, given the CCI’s limited workforce and the increase in notifiable transactions on account of DVT, it is likely to result in:
* The CCI requiring parties to mandatorily consult before filing
* An increase in the number of information requests leading to clock stops
* A potential increase in invalidations by the CCI and resultant delays.
Transacting parties would now have to cautiously and speedily (more than usual) plan their merger filing to avoid delays or non-compliance (given the significant increase in the penalties for non-disclosure of information and misrepresentation etc.).
Settlements And Commitments
In a welcome step, the parties can now either settle (admit guilt and settle the matter with a relatively lower penalty) or voluntarily undertake certain commitments (cease certain practices, undertake corrective measures etc.) to resolve cases expeditiously. In cases pertaining to anti-competitive agreements between a supplier-customer and abuse of dominance, a commitment could be offered after the CCI passes its preliminary order but before issuance of the investigation report to the parties; whereas a settlement application could be filed any time after issuance of investigation report to the parties but before the CCI passes its final order. (For context, under the Act, the Director General’s (DG) office is tasked with the responsibility to investigate a matter and submit its report to the CCI.)
These early redressal mechanisms, however, are not available to the parties as a matter of right. The CCI, while deciding an application, would assess the gravity and nature of the violation and consider the views of interested third parties and the DG. The CCI’s decision is not appealable. While the commitment process does not result in admission of guilt, settlement does and the party settling would be exposed to potential compensation claims.
Expanding The Scope Of Cartel
The Amendments bring within the scope of cartels a kind of “hub and spoke” arrangement where a non-competing entity could be scrutinized by the CCI if it “intends to participate or participates in furtherance of” a horizontal agreement (agreement between competitors).
The CCI, in the past, has considered the parties following directions of a cartel to be (equally) in violation and have imposed penalties. This change codifies the CCI’s legal position and casts an obligation on any entity acting in consonance with a cartel to either distance itself or report the same to the CCI to escape/ minimize liability.
Penalties: Consider A Middle Ground
The CCI is now empowered to impose penalties on the global turnover of the parties. This revision increases the penalty exposure for global companies and appears to be inconsistent with the principle of ‘relevant turnover’ as laid down by the Supreme Court (SC) in the Excel Corp case.
It remains unclear whether the amendment overrules Excel Corp or will it be read harmoniously with the SC order to compute penalty based on the relevant “global” turnover of the infringing product. While taking a view on this, the CCI is expected to consider the principles of proportionality and nexus.
Overall, the Amendments are a step in the right direction towards evolving a robust competition regulatory framework. Once notified, the CCI would be amped with more powers and is expected to step up its enforcement with greater zeal. This would mean corporate India will have to exercise greater caution and increase its compliance measures to avoid liability.